We recommend that all rates of compensatory allowances not reviewed separately, and the Reserves’ Bounties, be increased by one per cent

with effect from 1 April 2017 . The recommended rates are in Appendix 2 .

Financial Incentives considered outside our usual timetable

3.78. In February 2016, we were asked to consider a proposal for a Financial Retention Incentive (FRI) of £24,000 for Royal Navy Technicians in the Engineering General Service (EGS) sub-branch, and a follow-on FRI for Petty Officer Engineering Technicians and Chief Petty Officer Engineering Technicians (£28,000 and £32,000, respectively). All of these FRIs involved a four year Return of Service. Given the stark picture on retention, we endorsed the FRI proposals from MOD.

3.79. We will expect the engineering paper of evidence that we have been promised for next year’s review to include an evaluation by MOD of these FRIs as part of the overall remuneration strategy for engineering.

3.80. We were also asked by MOD to consider an urgent proposal to broaden the eligibility of the Army Reserves Commitment Bonus to help recruit and retain Professionally Qualified Officer (PQO) posts within the Army Medical Services and Royal Army Chaplains’

Department of the Army Reserves, giving ex-Regular OF3 and OF4 PQOs access to the Army Reserves Commitment Bonus Scheme from 1 October 2016.

3.81. We considered and endorsed the proposal in October 2016. We recognised that it would provide a targeted incentive for ex-Regulars to join the Reserves to help address a recruitment issue at PQO level. We note that MOD intends monitoring the effectiveness of the Commitment Bonus Scheme and ask that it keeps us informed.

Pay16

3.82. In our last report, we noted the introduction of the New Employment Model pay structure, known as Pay16. The new structure was designed to address issues with the previous model (Pay 2000) that were a source of significant dissatisfaction with Service

personnel. Pay16 retains incremental pay scales and progression, and we know from our conversations with Service personnel that predictable pay progression over several years to a scale maximum is greatly valued by them. By offering some stability amid the inherent risks and uncertainties of Service life, it is an important part of the offer and supports recruitment, retention, motivation and morale.

3.83. Under Pay16, each trade is assigned to one of four trade supplements. An individual in a specific trade can then expect to remain in that supplement for the duration of their military career. This is intended to allow appropriate differentiation in pay between trades and give an individual more clarity in what they might expect to be paid in the future.

Trades were assigned to the four trade supplements on the basis of a comprehensive job evaluation exercise which was validated by the various trade sponsors, senior Military staff from each Service and the central Joint Services Job Evaluation Team (JSJET) to ensure it was fair and equitable.

3.84. In evidence to us this year, MOD commented that Pay16 was not a savings exercise, but rather a re-balancing of pay resources to provide a simpler, more efficient and transparent core pay model. It said there had been a ‘no loss’ policy on go live, which was 1 April 2016: those Service personnel who benefited from a pay increase received the gains immediately, whilst additional money was provided to ensure that pay protection was applied to those who would otherwise see a reduction. Pay protection either maintained an individual’s specific rate of pay, or transitioned individuals to the nearest ‘no-loss’

Pay16 rate, where they will remain (retaining eligibility for any annual pay awards) until accrued seniority moves them on and they re-start incremental progression. MOD said that pay protection would be in place for at least three years, with a review held at the end of the first year of operation to assess the role pay protection might play over the longer term.

3.85. MOD said that the placement of trades to supplements will continue to be based on job analysis and that there will be a rolling programme of job evaluation reviews of each trade by the JSJET. The mechanism for future review of the placements of trades to supplements will be considered by the Defence People and Training Board, but the principle is that a full formal review should occur no less frequently than every five years.

MOD said that as required, there would be a process to review individual trades and make any necessary adjustments. However, any resultant pay bill costs would need to be considered and prioritised alongside other competing financial pressures.

3.86. Our 2016 visit programme took place shortly after the implementation of Pay16, so it was perhaps unsurprising that it was one of the major themes during our discussion groups with Service personnel. The allocation of trades to supplements led to a strong feeling from a minority of Service personnel about being undervalued, either compared to other trades within their service, or in relation to equivalent trades in other parts of the Armed Forces. Some Service personnel placed on protected rates of pay told us that there was now little benefit in being promoted, as they would not see an increase in their pay commensurate with the additional responsibility. Many of these outcomes are an inevitable consequence of addressing the pay anomalies in Pay2000. Service personnel were also concerned about what would happen after the initial three years of pay protection for Pay16. It was often not clear to us that the professional leadership for trades were communicating and taking ownership of key decisions affecting employment terms as a result of Pay16.

3.87. In our last report, we commented on the importance of a comprehensive communication exercise to ensure that all Service personnel understand the new pay structure and its implications both in the short and long term. That view has been reinforced by what we heard during our visit programme. It is crucial in our view that senior management take ownership of Pay16 decisions and provide an effective communication mechanism that engages and utilises the full command chain to comprehensively brief Service personnel,

and that such communications should be proactive rather than simply reactive. We noted that there could be nuanced reasons why trades had been placed within particular supplements, and can appreciate that decisions might look questionable to an individual making comparisons from their specific and personal perspective. Some branches took an

‘all of one company’ approach, whilst some others used management discretion in their decision making. The ongoing reviews of all trade supplements will provide a vehicle to carry forward staff engagement in the pay system, but as with all communication, it is vital that messaging is ongoing and reinforced regularly. We return to the issue of communications in Chapter 5.

3.88. MOD will be reviewing the role of pay protection in early 2017. We have previously signalled our support for the initial three years of pay protection and look forward to learning the outcome of the review. Nevertheless, it is worth putting on record that we support ongoing pay protection policy for Service personnel who have transitioned to Pay16.

Payment of professional body fees

3.89. MOD told us that following our earlier request for the consideration of the

reimbursement of professional body fees (PBFs) for Allied Health Professionals, approval from HMRC had been obtained backdated to April 2016 and reimbursement had begun, which we welcome. MOD said that in the case of PBFs for engineers, there was no overarching policy or consistency, but that an early outcome of the work undertaken by the Defence Engineer Remuneration Review had agreed that from April 2016, annual subscription fees for Professional Engineering Institutions and the annual Engineering Council registration fees would be reimbursed to all qualifying members of the Armed Forces. MOD said that further work continues to identify any additional cohorts for whom the reimbursement of PBFs was appropriate. We believe that a consistent approach should be taken to the reimbursement of PBFs for all relevant groups. By way of example, we identified farriers as an affected group during our visit programme. We support reimbursement of PBFs for Service personnel where those PBFs are an essential requirement for carrying out Service duties and strongly believe that MOD should implement a mechanism to enable the reimbursement of PBFs for all cohorts where membership of a professional body is essential given the nature of their role.

Chapter 4